Israel is under assault. On Sept. 20 the Palestinian Authority plans to unilaterally declare statehood and go to the United Nations for recognition. This is a rejection of all efforts for a peaceful compromise. In its wake will come waves of Palestinian violence. And yet this is just the latest manifestation of an embattled Israel that is being threatened from the outside—by Muslim Arab states and societies, Egyptians storming the Israeli Embassy, a nuclear-arming Iran (with its local sidekicks, Hamas in the Gaza Strip, Hizbullah in Lebanon), and a besieged President Bashar al-Assad in Syria—and from the inside by domestic upheaval that led to the largest mass protests in the country’s history.

More than 50 years ago, Israel’s leaders, headed by David Ben-Gurion, believed and hoped that they were creating a social democracy, with all the requisite egalitarian accoutrements (socialized national health care, progressive income tax, child benefits, subsidized cheap housing). Ben-Gurion, who owned almost nothing and retired to a primitive hut in the Negev Desert, typified the austere lifestyle, and greatness, of the state’s founders.

This is no longer Israel. A profound, internal, existential crisis has arrived. It stems in part from the changing nature of the country, more right wing, more restrictive, far less liberal, and far less egalitarian. Many moderate Israelis fear the country is heading for ruin. Indeed, the country’s ruling class, including Benjamin Netanyahu and his predecessors Ehud Olmert (now on trial for corruption) and Ehud Barak (a former head of the Labor Party and current defense minister), live in opulence, and the feeling is that they are out of touch with reality. In Tel Aviv, where some 350,000 gathered in protest, a widespread chant, set to a popular children’s ditty, was “Bibi has three apartments, which is why we have none.”

Tent cities popped up as the demonstrators—20- to 45-year-olds, with a healthy contingent of older people—rallied against nonprogressive taxation, low wages, and the high cost of housing and consumer goods, which have made it nigh impossible for families to make ends meet. A full 20 percent of Israelis (and 15 percent of Israeli Jews) live under the poverty line, and the top decile of Israel’s population earns 31 percent of the country’s total net income. The lowest decile earns a mere 1.6 percent. Last year Israel was elected to membership in the Organization for Economic Cooperation and Development, a group of the world’s 32 most-developed countries. Among them, Israel ranks as one of the worst (alongside Mexico and the United States) in terms of wealth polarization.

Israel suffers from a steady brain drain, with tens of thousands of university graduates and wannabe academics moving abroad for lack of adequate positions or pay. Berlin has a community of more than 10,000 young Israelis, many of them working in the arts, who found creativity in Israel impossible. In a recent interview, one film director said that in Israel her energies were spent on making commercials and fashion trivia in order to subsist; Berlin enabled her to pursue her passion. In Tel Aviv, kindergartens charge $700 to $1,000 per child per month; in Berlin, the cost is $120; a kilo of cucumbers costs $1 in Tel Aviv, half that in Berlin.

Thousands gather to protest the cost of living in Israel at a protest in Jerusalem on Sept. 3, 2011., Sebastian Scheiner / AP

In the 1950s, Israel was an under-developed country filled with ideologically motivated Zionists willing to sacrifice for the collective good. Today’s Israel has a burgeoning economy, driven by sophisticated and internationally competitive high-tech industries, and a population driven mainly by individuals who want the good life. They see that too much of the national pie goes both to the West Bank settlers (who tend to be religious and ultranationalist) and to the ultra-Orthodox (who contribute almost nothing to the economy and avoid mandatory military service).

Worse, this hard-core contingent is making babies at a rapid clip; they tend to have five to eight children per family, versus two to three children in secular homes. This gives them disproportionate clout in Parliament. And that translates into political power—and economic benefits. (Paradoxically, the ultra-Orthodox remain the poorest sector in Israeli Jewish society, mainly because most of them don’t work.)

The other side of the coin: Israel’s own Arab minority is emerging as a potential major problem, too. The Israeli Arab landscape is increasingly dominated by minarets and veiled women; and its leaders, identifying with their Palestinian cousins outside, vociferously call for Israel to shed its character as a “Jewish state” and give its Arab citizens collective minority rights and perhaps some form of autonomy.

Israel is a deeply troubled democracy. A democracy it still is, for its citizens—both Jewish and Arab. But Israel is no democracy when it comes to the semi-occupied 2.5 million Arabs of the West Bank and the 1.5 million semi-besieged Arabs of the Gaza Strip. And all this is now congealing.

Since the West Bank and Gaza were conquered in 1967, successive Israeli governments have failed to fully withdraw from them, either unilaterally or with a peace deal. The Arabs may have been largely at fault—in 2000 Palestinian leader Yasir Arafat turned down an Israeli offer to withdraw from 95 percent of the West Bank and 100 percent of the Gaza Strip—but Israel retains its stranglehold over these people and continues to expand its settlement enterprise.

Now there looms the even greater threat of resurgent Islam, not just within Israel’s borders or the Palestinian territories, but across the region, where it is spreading like a brushfire. Many in the West have taken heart from the so-called Arab Spring, viewing the upheavals as heralds of democratic transformation. Israelis are less optimistic. The Islamist message that is coming out of Ankara, and moving to center stage in Cairo, includes a hard core of anti-Zionism usually accompanied by anti-Semitic overtones. (Egypt’s deposed president Hosni Mubarak is now denounced as a “stooge of the Zionists.” A photo of Netanyahu, dressed in an SS uniform, with a Hitler mustache, making the Nazi salute, appeared on the cover of the popular Egyptian weekly October on Aug. 28. Inside, the journal carried an article called “The New Nazis”—and it isn’t even an Islamist publication.)

Netanyahu is creating a series of bureaucratic salves for the country’s economic ills. But they will be swamped, and rendered irrelevant, in the tide of Palestinian activism and anti-Zionism that will be set off by the Palestinian statehood bid. It will then trigger shock waves around the Arab and Islamic worlds. Months ago, Ehud Barak predicted that Israel will face a “political tsunami.” Here it comes.

Strategic Studies Institute(Army)
The Strategic Studies Institute of the U.S. Army War College publishes national security and strategic research and analysis which serves to influence policy debate and bridge the gap between Military and Academia.